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Capital Management 11. Capital Management Objectives The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going concern so that it can continue to provide appropriate returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders maintain a fully underwritten dividend reinvestment plan return capital to shareholders issue new shares buy back existing shares or sell assets to reduce debt. The Group is undertaking measures to reduce net debt and has a stated objective of reaching a leverage ratio of below 2.5 times. The following outlines the capital management policies that are currently in place for the Group Dividend Policy Dividend Payout Ratio The Groups dividend policy has been to payout between 60-70 of underlying financial year Net Profit After Tax as advised in a Capital Management Initiatives media release on 24 November 2011. There has been no change to this stated policy since this media release. Dividend Reinvestment Plan DRP The Group operates a DRP whereby shareholders can elect to receive their dividends by way of receiving shares in the Company instead of cash. The Company can elect to either issue new shares or to buy shares on-market. For the final 2014 dividend and interim 2015 dividend the DRP operated with a 2.5 discount being offered to participants 2014 nil discount for the final 2013 and interim 2014 dividends. Underwritten DRP The Company entered into a DRP Shortfall Placement Agreement with CBA Equities Limited CBA Equities for the final 2014 and interim 2015 dividends that involved CBA Equities subscribing for shares with a value of up to 100 of the shortfall in DRP Participation by Company shareholders. The DRP achieved an average subscription rate of 63 and as such resulted in CBA Equities subscribing for 37 over the two subscriptions. For both dividends the DRP was fully underwritten and resulted in 15.8 million cash being retained in the business that would otherwise have been paid out to shareholders. Further details on the Groups dividends are outlined in Note 12. Debt Facilities Syndicated Debt Facility The Group has a 650 million revolving 5 year Syndicated Facility Agreement SFA expiring on 12 January 2019. This facility is used as core debt for the Group and may be paid down and redrawn in accordance with the SFA. Covenants During the year the Banking Group being Southern Cross Austereo Pty Ltd and its subsidiaries requested a temporary extension in its leverage ratio covenant from 3.5 times to 3.75 times between June 2015 and December 2015 after which the covenant will revert back to 3.5 times. The Group has a target leverage ratio of 2.5 times. The Group also has an interest cover ratio covenant of 3.0 times. Revolving Facility The Group cancelled its 50 million 2 year revolving facility on 26 February 2015 prior to its expiry on 12 January 2016. The facility was established to fund any potential working capital requirements that may have resulted from the settlement of the tax dispute as outlined in Note 5 however the settlement was funded from free cash flow and the facility was no longer required. Non-Recourse Receivables Financing Facility In June 2015 the Banking Group entered into a 65 million non- recourse Receivables Financing Agreement RFA that enables the Group to convert receivables to cash quicker providing an additional source of funding for the Groups working capital needs. As the Group retains an interest in each of the receivables as the advance rate for each debtor is less than its face value and the Group only receives further payment if the debtor pays the receivable the full face value of the receivable is retained on the Groups balance sheet and the amount advanced under the RFA is recorded as a liability. As the RFA is considered non-recourse it is excluded from net debt for the purposes of the leverage ratio calculation. Further details on the Groups debt facilities are outlined in Note 15. Property Plant and Equipment During the year the Group deferred non-essential capital expenditure until later years to assist with reducing debt levels which resulted in around 5.3 million of capital expenditure being deferred. The capital expenditure for 2015 was 27.7 million 2014 26.9 million. During the year the Group divested a non-core property which resulted in approximately 9.0 million cash being received which was used to reduce net debt. Further details on the Groups fixed assets are outlined in Note 6. 55 SOUTHERN CROSS AUSTEREO ANNUAL REPORT 2015